APPENDIX 4: LIST OF SCHEDULE 1 OFFENCES 270
4.2 FRAUD PREVENTION THEORY
4.2.2 Fraud Prevention Initiatives
should be taken into consideration when addressing employee fraud and prevention strategies at universities in KwaZulu-Natal.
need to design and implement robust anti-fraud policies and procedures in order to prevent fraud from occurring. In this study, the fraud prevention model includes more than sound anti- fraud policies and procedures.
4.2.2.1 Fraud Policy and Response Plan
It is essential for organisations to create and implement a fraud policy and response plan.
According to the Chartered Institute of Management Accountants (CIMA, 2008:44), organisations should address fraud by designing and implementing a fraud policy and response plan. The policy should stipulate the action that will be taken once fraud is detected or suspected. Such a policy serves multiple objectives. It has an effect on fraud prevention, detection and response (investigation). The policy should guide the process of evidence gathering to ensure admissibility in courts of law. CIMA (2008:44) also avers that the policy should emphasise the commitment of the organisation to high standards of legal, moral and ethical conduct as well as spell out the consequences for employees who do not adhere to these standards. According to Ernst and Young (EY; 2013:2), it is essential to have a well-defined fraud response plan that will ensure that investigations are conducted ethically and effectively.
The Fraud Policy and Response Plan of UKZN (2015) is attached as Appendix 11 to this thesis. The Institute of Internal Auditors (IIA; 2009:20) argues that a fraud policy is essential for management, in which a strong ethical culture amongst all employees within the organisation is stipulated. Krummeck (2000:269) holds the view that a fraud policy should be seen to be endorsed by executive and senior management, and communicated throughout the organisation for it to be successful.
4.2.2.2 Whistle-Blowing
The results of a global survey conducted by the ACFE (2014:19) show that 42 percent of employee fraud was detected by means of a tip off. This result emphasises the benefit to organisations in having a whistle blowing facility together with a relevant policy to address fraud. According to Lord (2010:14), most organisations do not have a process of rewarding whistle blowers for providing a tip off, despite the fact that tip offs are the most predominant means of detecting fraud. In an instance when a person who provides a tip off wishes to remain anonymous, the assertion by Lord (2010:14) may not be possible. The ACFE (2014:21) holds the view that organisations generally share information about the fraud hotline with employees only.
Nilsen (2010:22) proffers that it is essential in a fraud prevention and detection program to ensure the provision of an anonymous, confidential and independent system for reporting fraud. Reidy and Theobald (2011:48) hold the view that whistle blowing programs are effective tools in combating fraud. According to Reidy and Theobald (2011:48), the Sarbanes- Oxley Act of 2002 in the United States of America (USA) compelled organisations to implement a whistle blowing program in order to receive and respond to reports about fraudulent activities. Subsequently, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 compelled the U.S. Securities and Exchange Commission (SEC) to reward whistle blowers for reporting transgressions of federal securities legislation in the USA.
According to the website of the U.S. SEC (2014), the Commission is authorised to provide
“monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected”.
According to Krummeck (2000:271), employees will report fraud only if they trust the system.
4.2.2.3 Ethics
According to CIMA (2008:28), designing and implementing anti-fraud policies and a code of ethics are not sufficient in addressing fraud. Organisations need to inculcate a culture of ethical conduct amongst all its employees, from its leadership to the most junior employee. Employees should emulate their leadership and management and act ethically. CIMA (2008:28) avers that management should not adopt double standards and act unethically, yet expect their subordinates to behave otherwise. Reidy and Theobald (2011:50) hold the view that it is essential for management to engender a sound ethical culture at the top, which is supported by management leading by example and providing awareness training to employees. According to Krummeck (2000:271), employees can be prevented from committing fraud if they are reminded about the impact their incarceration for fraud will have on their families. This will assist in inculcating a sound ethical culture within the organisation.
4.2.2.4 Fraud Awareness
According to Reidy and Theobald (2011:50), providing fraud awareness training to employees is one of the standard fraud prevention methods that organisations utilise. Krummeck (2000:269) suggests that organisations should be transparent in their communication with employees by providing training to them to make them aware of what they need to look out
for, the nature of fraud, the manner in which it was committed and relevant statistics which may indicate a pattern of fraud. Krummeck (2000:269) avers that employees will not be equipped to assist in the prevention of fraud in the absence of this type of training. Employees who are trained to identify fraud schemes will be valuable in reporting fraud when they encounter it. Krummeck (2000:271) suggests that the provision of awareness training to employees about fraud and unethical conduct should also include highlighting its devastating effect on the entire organisation. According to Albrecht et al. (2006:111), Coenen (2008:159) and CIMA (2008:24), educating and making employees aware of fraud is an essential fraud prevention intervention. This section should be considered when addressing employee fraud and prevention strategies at universities in KwaZulu-Natal.